Consumer confidence has experienced a record decline, unseen for more than 26 years. GfK’s long-running index revealed that consumer confidence in July had fallen to -12, compared to -1 for June. This drop was last seen in March 1990, shortly before the UK began to fall into recession later in the year.
This reported slump in confidence is reflected in the decline in consumer spending. According to Visa’s Consuming Spending Index, June saw the lowest quarter for spending since Q3 2013. So as retailers face this extremely challenging economic climate, what can they be doing to mitigate its effects on their bottom line?
Retention, retention, retention
As consumers tighten their purse strings, retailers have to be savvy about how they approach their marketing strategies. And this means being savvy with marketing spend. Reports have found that it costs five times as much to acquire a new customer than to retain an existing one. Yet 44% of companies reportedly focus more on customer acquisition compared to only 18% of companies who focus more on retention.
Retailers should now more than ever be focusing on retention, ensuring that those customers who have already shown loyalty to their brand continue to do so. The key to this is targeted, timely and regular communication. Once a customers has bought from you, set up an automated calendar of communications comprised of news that could be of interest to them , as well as personalised recommended products based on the data you have collected on them in your CRM.
You should also be able to find out the ROI of each customer through your CRM. Utilise this data to offer incentives and discounts to your most profitable customers to encourage further loyalty from them, and not from less profitable ones, ensuring you are allocating budget where the greatest return will be found.
Offer customer finance
Whilst consumers may be cutting back on smaller purchases, it is retailers selling high-value items who could be hit worst if they do not put strategies in place to ease the customer’s spending concerns. To achieve this, there is one relatively untapped, but extremely effective, tool that they can implement – customer finance.
By offering finance to consumers in the form of monthly instalments, a major barrier that is preventing them from purchasing – spending a large lump sum all at once – is immediately removed, so driving them to purchase. Divido offers this solution at 0% interest, further driving sales and boosting average order value. And what’s more, the merchant gets paid in full straight-away so they are never short of capital to invest in other projects and campaigns.
Utilise programmatic advertising
Programmatic advertising may not be anything new, but recent developments in the technology are making it an increasingly effective channel to retarget existing visitors. By analysing the individual user’s online behaviour and combining this with demographic data, retailers can deliver targeted display ads to their high value users to bring them back to their site to purchase.
However, as well as delivering ads of products the user has browsed to encourage them to complete their purchase, programmatic companies can also predict what the customer could be interested in purchasing in a given time. For example, if a customer starts to buy maternity clothes, the retailer knows they are likely pregnant and so, in around 9 months’ time, can deliver ads for baby clothing. Or perhaps a customer has bought an engagement ring, indicating that he is getting married. In a little over a year’s’ time, the merchant therefore knows it is the one year wedding anniversary and so can begin serving ads of jewellery ‘as the perfect anniversary gift’. The opportunities for retailers to retarget their customers with programmatic ads are endless, and if used intelligently can hugely boost sales.
Reconsider pricing strategies
As sales decline, it may be worth taking a look at your pricing strategy. For many businesses, they implement a Gross Profit Margin Target (GPMT) strategy, calculating the gross profit margin needed to pay back expenses and generate a positive net income. However, during this climate retailers may have to consider lowering the price of their products or offer more discounts in order to boost sales volume, and in turn hopefully retain their gross profit margin.
It’s also worth exploring psychological pricing. Whilst many retailers deploy the Most Significant Digit (MSD) strategy (pricing products at little less than a round number), displaying prices in descending order has also been shown to boost the willingness to pay a higher price and the probability of purchase because the higher price makes the lower price appear more favourable. Though these techniques may not work for all your offering, you should triall them and analyse the comparative results.
The slump in consumer confidence may recover in part soon, but with the uncertainty of Brexit looming and the deficit still high, retailers must continue to innovate and introduce effective strategies to boost sales. However, the good news is that with a strong CRM system in place, flexible finance offerings and intelligent advertising, retailers will be in a strong position to grow their business.
Kate Rogerson, Divido